The Royal El Fraude

The institution of the Spanish monarchy has been considered sacrosanct for centuries, even more so since the end of the four-decade-long Franco dictatorship in 1975 and the beginning of a parliamentary monarchy era in Spain. Those who have not had a chance to live under the royals might not comprehend the importance and responsibility entailed in royalty (i.e., the individuals representing it). The royal family as a whole carries out important work in the areas of public and charitable service, and in strengthening national unity and stability. Monarchy is a token of statehood, which ensures perseverance and endurance of the nation. “But, what ends when the symbols shatter” and the public trust toward the divine rule is undermined or even lost?

In the post-2008 years, the Spanish subjects were battered by financial trepidations, such as austerity measures, tax increases and distressing unemployment rates whereas in 2011, Iñaki Urdangarin, the Duke of Palma de Mallorca and the royal son in-law, faced suspicion of “using his high-profile status to win contracts from regional governments for a nonprofit foundation he ran, then subcontracted the work to companies he also oversaw, sometimes charging the public ridiculously inflated prices and stashing at least some of the income in overseas tax havens.”1 It was estimated that the income received by the Duke and his associates could surpass 6 million euros ($8 million).2 In the king's Christmas speech on December 24, 2011, King Juan Carlos stated that "La justicia es igual para todos" ("Justice is the same for everyone").3 Indeed, the arm of justice reached even closer to the royal court in 2013 when Urdangarin’s wife the royal princess Infanta Cristina of Spain, Duchess of Palma de Mallorca, was also named a suspect in this corruption scandal.

It was an unprecedented event in the Spanish history for the court to summon a member of the king's immediate family.4

Nóos Scandal at a Glance

The Duke's asserted misconduct goes back to 2004-2006 when he directed the Nóos Institute, a nonprofit-making organization. The allegations pertain to tax-evasion on a large scale and money laundering. Since Princess Cristina was on the board of directors, it is beyond reasonable doubt that her husband could have proceeded with the scheme without her knowing about it. Ultimately, Urdangarin used his royal position to embezzle several million dollars in public contracts assigned to a nonprofit foundation he set up. The misappropriation of funds by the Nóos Institute included over-budgeting projects, as well as charging for other work that was never delivered. Overall, approximately 6 million euro of public funds vanished into thin air. The Duke and his business associate, Diego Torres, purportedly “siphoned off the money to other private companies and to offshore bank accounts in tax havens including the U.K. and Belize. One of the companies that received some of this money is Aizoon, which is jointly owned by Princess Cristina and her husband.” 5 According to the testimony provided by Mr.Tejeiro, who was Nóos's accountant, "The profit that should have been pooled within the Nóos Institute was not used for the ends and means of the association, but was transmitted to the private companies of Messrs Torres and Urdangarin."6 In addition, “a Spanish prosecutor has called for charges against Princess Cristina to be dropped;”7 however, there has been no conviction or acquittal for that matter and as the investigation and court hearings continue, it is yet to be seen whether the justice system will punish this less-than-exemplary behavior toward the title and the Spanish society or whether a sense of entitlement will prevail.

This high-profile scandal proves how vital it is for the authorities and all individuals involved in the pursuit and prosecution of illegal activities to continue their battle with corruption and the abuse of power by public officials and political appointees. It also a lesson to be learnt by the public to call for more honesty and transparency from their representatives whether elected or anointed.

Whereas nonprofit organizations have certain temptations to fraudsters, the actual fraud schemes they might face are common to all sorts of organizations. These could involve “check fraud, embezzlement, ghost employees, expense fraud, misappropriation of funds for personal use, fictitious vendor schemes, kickbacks from unscrupulous vendors, and outright theft of cash or assets—to name a few.”8 Even though it can be challenging to detect any of the above, especially if higher-ups are involved, there are some common red flags that can serve as general indicators of a potential criminal activity underway. Among these are:

  • False claims/statements/invoices
  • Anomalies in bidding documents/financial records
  • Unusual timing/frequency of transactions
  • Questionable parties involved in transactions
  • Incomplete audit trail data and a pattern of similar audit adjustments proposed on an annual basis
  • A lack of adequate disbursement oversight
  • Unusually close relationship with vendors/customers
  • Collusion among top employees over whom there is little to no supervision

Furthermore, it needs to be borne in mind that the politically exposed person (PEP) presence in any organization increases the compliance risk since these individuals or their associates, who might use the PEP status and image of their employers, have better opportunities to avoid taxes and commit money laundering crimes. PEPs more often than not have impeccable reputations which constitutes the beacon of public trust. These factors combined with a broad web of contacts in government institutions provide PEPs with a plethora of possibilities to cover up their illegal activities. Hence, extra vigilance and caution are indispensable when dealing with PEPs and organizations run by them.

Fraud and corruption cannot be ultimately eliminated from the public life as there is no panacea against fraudsters and their propensity to commit crime, yet there are factors mitigating the risks associated with fraud. Therefore, the following should be implemented in any organization—and especially those organizations that have high-profile board members that could be considered PEPs such as in the case of the Duke and the Duchess of Palma de Mallorca—to help defend against fraudulent activity:

  • Establish appropriate tone at the top while also offering employees a venue to anonymously report their concerns and issues;
  • Implement adequate internal controls;
  • Have a check or balance system in place;
  • Have accountability and good governance procedures;
  • Introduce fraud prevention technologies such as data analytics and data mining; and
  • Most importantly, flourish the culture of trust and transparency within the organization.

Natalia Stankiewicz, CAMS, senior consultant, Deloitte Advisory s.r.o, Prague, Karlín, Czech Republic,

  1. Accessed 2014 September 19.
  2. Ibid.
  3. Accessed 2014 September 19.
  4. Accessed 2014 September 19.
  5. Accessed 2014 September 19.
  6. Accessed 2014 September 19.
  7. Accessed 2015 January 5.
  8. Accessed 2014 December 9.

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